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HMRC internal manual

MLR1 Penalties Guidance

Penalties guidance: the MLR penalty process: overview: Compliance Penalties Part 1

Compliance penalties

There are effectively 4 parts to this process once the extent of the breaches has been established:

  • calculate the total starting penalty (fixed starting penalty plus addittional penalty)
  • calculate the penalty cap
  • compare both and take the lower amount to arrive at a maximum penalty
  • apply the reduction percentage, where appropriate, to this figure to give the final penalty figure.

The regulations state that any penalty must be ‘effective, proportionate and dissuasive’. By setting a fixed starting penalty, this ensures the penalty is ‘dissuasive’.

The additional penalty only applies to compliance breaches, not registration breaches, and the purpose of it is to make sure the penalty reflects the seriousness of the offence and the amount of money potentially exposed to money laundering. This therefore ensures the penalty is ‘proportionate’.

For information on how we calculate the additional penalty for Money Service Businesses/High Value Dealers see MLR1PP2220 

For information on how we calculate the additional penalty for Accountancy Service Providers/Trust or Company Service Providers/Estate Agency Businesses see MLR1PP2230 

Extent of breaches

A failure to carry out an obligation under the Regulations can be isolated and involve one, or a few, customers or can be systemic and throughout parts, or the whole, of a business.

A business who has no regard for or does not carry out risk assessment, have policies, controls and procedures in place and does not ensure that staff comply with them is likely to have failed to meet their obligations to, for example, train staff or carry out customer due diligence.

HMRC will ensure that every group of breaches is penalised and where there are failures throughout a business our approach will be to penalise each group of related breaches  and calculate a penalty that is appropriate and recognises the extent of the failures.

Fixed starting penalty

The fixed starting penalty applies to MLR compliance breaches.

If a business fails to meet its obligations and the failures are throughout the business, or a part of the business, HMRC will normally apply the starting penalty of £5,000 to each group of related breaches, or in very serious cases, to each breach found.